NICHOLAS GRUEN. All finance requires is an upgrade for the internet age

The Financial  Times has published a letter from Nicholas Gruen in response to Martin Wolf’s column about the Swiss ‘sovereign money’ referendum, previously reprinted on this blog).  Mr Gruen’s letter is as follows:

Given the resounding ‘no’ from the Swiss Vollgeld or ‘sovereign money’ referendum, and notwithstanding Bob Sleeper’s relief, Martin Wolf’s central question from last week’s column remains. A decade after the devastation, where’s the “radical rethink” of finance?

Mr. Wolf was kind enough to mention my own alternative plan which does nothing more than simply upgrade the existing public private partnership that is banking for the internet age.

Today central banks provide wholesale utility banking services to commercial banks, who then retail them to all. Just as Barclays and Lloyds can now, in my plan anyone could deposit funds with the Bank of England and use those funds to pay other account holders. They could also borrow from the Bank of England if it entails minimal risk. I’ve suggested lending up to just 60 percent of the value of a home mortgage. As with Barclays and Lloyds, interest would be paid on deposits and loans at Bank Rate.

These arrangements:

  • Generate tens of billions of pounds in government revenue from mortgage payments to the central bank;
  • Slash home loan interest rates on super-safe lending (whilst increasing them for the – still privately provided – riskier lending over 60 percent of a property’s value);
  • Help grow a payments system less vulnerable to commercial bank insolvency and the attendant giveaways to plutocrats;

We’ve been here before.

In 1844 only commercial banks issued retail banknotes. Despite one parliamentarian’s warning of the “disastrous consequences” of government involvement in banking, Bank of England banknotes largely displaced the risk, fragmentation, and cost of the alternative. This led commercial banks to focus on where they could add the most value in funding commercial credit and pricing the attendant risks.

All we need to do now is replicate that move for the internet age.

Nicholas Gruen
CEO, Lateral Economics, Visiting Professor at Kings College London Policy Institute.

 

 

 

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John Laurence Menadue is the publisher of Pearls & Irritations. He has had a distinguished career both in the private sector and in the Public Service.

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